Would poor people be better off without all those low priced products fromChina?

Over a year ago

by Lawrence Marsh

Would poor people be better off without all those low priced products from China sold at WalMart?

What about the retired and elderly on Social Security? Don’t they benefit from lower prices just like everyone else? Why does the debate about trade always seem to ignore them?

Since everyone is a consumer, everyone benefits from lower prices. Lowering prices is the most democratic policy a country can pursue, because it helps everyone and not just some special interest group, a particular group of workers or company trying to avoid competition.

When I took international economics in graduate school it was all about comparative advantage and resource allocation. How did the debate become centered on jobs and wages?

The number of jobs in our economy is the responsibility of monetary and fiscal policy and not trade policy.

The quality of jobs depends upon education. Modern economies require significantly higher levels of appropriate skills. Workers who have not done anything to increase their personal productivity should not expect wage increases anymore than companies that have not offered new or better products at lower cost should expect profit increases. Government policy should help people enhance their jobs skills.

To be honest the system that Adam Smith described so well is not designed to help the capitalist or the worker. A company with high profits and a worker earning high wages both induce competition from others to drive down their profits and wages respectively. It is ironic that the consumer who does nothing other than show up at the store offering the best quality product at the lowest price is ultimately the winner. From this perspective the system should be called “consumerism” instead of “capitalism.”

A tariff is a hidden tax. A sales tax shows up on your store receipt. You see exactly how much you paid in taxes. When sales tax is too high, you can complain to your district representative or simply vote the incumbent out of office in favor of the candidate who promises to cut the sales tax. With a tariff you don’t even know you are paying it. It can take as much or more out of your dollar than the sales tax, but you don’t ever see it. Some believe that this lack of transparency is tantamount to taxation without representation. We dumped their tea in the Boston harbor and threw the British out when they tried putting an import tariff on tea. Yet now we absorb these hidden tariff duties as if they didn’t exist.

Does the tariff of 54 cents a gallon on imported ethanol really benefit the average consumer at the gas pump?

Since we all benefit from lower prices, it is unfair to put the cost of that benefit on a relatively small group of workers. Workers who lose their jobs to technology or to overseas competitors should be given special assistance. However, we should not impose tariffs or otherwise interfere with free trade. To do so would mean short-changing everyone to protect the jobs of a few. We need specific policies to assist workers who lose their jobs, but not policies that raise prices and, thereby, lower the real wages of all Americans.

Since our most productive and competitive companies can offer better jobs than our inefficient and uncompetitive ones, better jobs will be created to replace the ones eliminated. Whenever we can encourage more efficient production anywhere in the world, we are better off through lower world prices.

A common misconception about trade policy is that we would lose by unilaterally lowering our tariffs, and, therefore, we must require a tit-for-tat in tariff reduction in order to benefit. Nothing could be farther from the truth. In 1936 Lerner’s Theorem published in Economica proved that the damage caused by tariffs in the exchange of two products between two countries does not depend on which country’s government receives the tariff revenues. In other words, the price distortions and misallocation of world resources does not depend upon which government is responsible for the trade distortion. The world is equally worse off in either case. Even the revenues themselves do not help the country receiving them because they just inflate prices by a compensating amount.

If other countries insist on continuing their import tariffs and/or subsidies, they just hurt themselves by protecting inefficiency. If isolation from world trade was good, then Myanmar, North Korea and Cuba would be stellar performers and the Soviet and old Chinese economic systems would have succeeded.

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